GREECE – ATHENS – The title of this piece may seem incongruous, even provocative. Post-crisis? After all, Greece is once again caught in the middle of yet another program review aimed at certifying progress made in fiscal and structural reforms and unlocking the next tranche of its third bailout. And as is usually the case, the review completion is already months behind schedule, with no clear end in sight. What is more, we seem to be caught in an situation where the objectives of the main players are incompatible.
The IMF is insisting on more debt relief and on lower primary surpluses after the current programme (to which it has not yet subscribed) ends in 2018; failing that, it demands significant additional measures to ensure the numbers “add up” and debt is sustainable.
The European creditors on the other hand do not consider additional debt relief a priority and consider higher primary surpluses (to the tune of 3,5% of GDP) perfectly feasible. But politically they want the IMF on board. And the Greek government is caught in the middle: it would like the IMF’s position of more debt relief and lower primary surpluses to prevail; but as it sees that it will not, it would rather see the IMF outside the program rather than commit now to additional measures for post-2018. This standoff has become more complicated following the Greek government’s unilateral decision to give a “Christmas bonus” to pensioners which both in process and substance seems to be outside the current bailout agreement. And with this standoff, the already optimistic game plan for Greece to successively (i) swiftly complete the second review, (ii) be included in the ECB’s asset purchase programme, (iii) access markets on the back of the lower spreads in 2017 so as to (iv) fully fund itself from the markets when the current program expires in 2018 is clearly no longer a realistic proposition.
So is there anything that can justify a “post-crisis” discussion? Actually, yes. To begin with, despite the current standoff, a compromise solution is both possible and likely, either in the coming months or in spring to summer 2017. After all, the real cash crunch which would necessitate a loan disbursal (hence an agreement for that to happen) does not come before July.
It would involve the Greek government agreeing to extend the contingency mechanism on “automatic” cuts beyond 2018, with further specification on the direction the additional measures would take, if they became necessary. This would allow the IMF either to fully come into the program or instead remain with an “enhanced technical advisor role”. The exact outcome will depend on the balance between on the one hand the lack of appetite within the IMF to continue funding Greece coupled with the new US administration’s hands-off attitude to Europe and on the other hand the room for manoeuvre in Berlin on the interpretation of the German parliament’s decision for the IMF to be included in the programme. One way or another however, the review will close and we will all move on.
Then, there is politics, arguably the constraining factor to all reform attempts in Greece. 2017 will not be a repeat of 2015; there can be no new referendum. Having crossed the Rubicon two summers ago, the Syriza-Anel government is unlikely to go to the brink again. Whether it soldiers on to 2018 or calls a snap election sometime in 2017, the tail risk of a confrontation with the EU with Grexit looming seems to have all but disappeared. In fact, having shown two years ago the way by voting into power the first populist government in the EU, Greece is now poised to turn its back to Syriza and to populism after the next elections and lead the way back to mainstream politics – but hopefully, a politics that has learned from the mistakes of the past.
So this is a good time to talk about “post-crisis Greece”; in fact, it is not a moment too soon. Official growth projections for 2017 may arguably be too optimistic, but there can be no doubt that this will be the year when the economy finally comes out from its 9-year recession (since 2008, with GDP growing barely only in 2014). Furthermore, we are firmly in positive primary surplus territory, so that the country’s long-standing fiscal weakness has been – painfully – corrected; similarly for competitiveness, with Greece having eliminated the deficit in its external account. But let’s be clear: “post-crisis” does not mean that there will be no follow-up program when this one expires in 2018. There will be a follow-up arrangement, whatever it is called, for two reasons: the country will not be able to fully finance itself in international markets; and it will be vital for some kind of conditionality to be present in order to ensure a continuation of reforms.
It is in fact in those reforms that one can find the most hopeful message for the future. Since 2010, Greece has embarked (and in many cases completed) much delayed structural reforms in practically every government activity and part of the economy: the budget process, the tax system, public administration, pensions, social services, the judicial system, product markets, the labour market, the financial sector. Though there has often been hesitation and backsliding, there is no denying what has been achieved, nor however that it is still a case of “work in progress”. Nevertheless, the reforms which have already been undertaken boost the country’s productivity and competitiveness and are bound to improve Greece’s long-term growth potential. What is required for this to happen is perseverance and a renewed effort, especially in building institutions and trust with citizens at home and with investors abroad.